‘The Dumb Money Has Left the Market’

Thursday, Sept. 13, 2007 | Fewer homes sold last month in San Diego County than in any August in 15 years, DataQuick Information Systems reported Wednesday.

The 3,104 homes sold marked a 19.4 percent drop in sales volume from August 2006, and a 48 percent drop from the nearly 6,000 homes sold in August 2005.

But last month’s drastic tightening in the mortgage market didn’t yet appear significantly in August’s price and sales data, like some analysts previously predicted. A drastic tightening of restrictions on who could get a mortgage for more than $417,000, the threshold for so-called jumbo mortgages, hit the nation in August. Investors who once clamored to back the risky loans grew skittish and largely withdrew their capital in response to skyrocketing foreclosures.

Many of the deals that closed in August — and that show up in data now — began in July or early August, before the squeeze. Still, the same trouble that has plagued the region’s home sellers and overleveraged homeowners for more than a year continued last month, with acute trouble in the south and east parts of the county.

The overall median price for homes sold last month was $475,000, a 4 percent and $20,000 drop from August 2006. But with a smaller pot and different mix of homes selling, the all-home median tells a vague, incomplete story. As the sales of more expensive or larger homes draw the median upward, it tends to mask the plummeting values in some neighborhoods.

Resale detached homes sold for a median $319 per square foot last month, a 5.8 percent drop from August 2006, and a 9 percent drop from the peak for that measure in May 2006. The price-per-square-foot marker has slid gradually in the last few months, from $329 in April to $326 in May, $321 in June, and $320 in July, according to DataQuick.

“You can’t paint the whole market with one brush,” said DataQuick analyst Andrew LePage. “But we look at that as kind of significant. Not one of these measures is perfect, but that one’s been a pretty good indicator.”

An incessant flood of foreclosures through much of the county demonstrates one significant effect of the mortgage crunch: many people who borrowed money for a house a few years ago can’t now qualify to refinance into the kind of reasonable terms they need to hang on to their homes. RealtyTrac reported 2,699 new foreclosure filings in July, a 139 percent increase over July 2006 and a 907 percent increase over July 2005. That firm expects to release data for August next week.

“It’s like somebody turned off the spigot all of a sudden,” said Mark Goldman, a mortgage broker and real estate finance consultant for Windsor Capital Financial Corp. “I get two to three calls a week from people who are upside-down in their houses, getting behind in their payments.

“There’s no places for them to go for a loan; they don’t have equity,” he said. “There’s a world of hurt out there for these people.”

Analysts expect the mortgage market stress will soon show up in the sales data.

The rate at which borrowers used jumbo loans dropped in the last week of August, LePage said. In the last five days of the month, 29.9 percent of all home purchase loans were jumbo, compared to 34.5 percent in the last five days of July.

In the whole month of August, 33 percent of the purchase loans in the county were jumbo, down from 35.6 percent in July and January-through-July rate of 35.7 percent.

“It’s not huge, but it may be an indication of a larger trend,” LePage said. “We’ll watch the September numbers very closely.”

The decline in sales volume hit hardest in resale detached homes and new homes. The former logged a 22.6 percent drop from the previous August, with 1,667 homes sold. And the 647 new homes sold last month marked a 28.5 percent drop from August 2006’s rate and a 58.8 percent drop from August 2005.

Sales of resale condos also shifted slightly downward; 790 units sold, a 0.6 percent drop from the same month the previous year.

Sharyn Crown, a Coronado-based real estate broker with Napolitano GMAC Realty, said her 30 years in the real estate business have taken her through several downturns and booms, but there’s something different about this one.

“The market is just different because people are so nervous,” she said. “The lenders are running scared and the buyers are running scared. When you have a company like Countrywide (Financial Corp., a mortgage lender) laying off thousands of people, people get nervous.

Regionally, South County areas including Chula Vista, National City and San Ysidro are experiencing the most acute trouble. That part of the county “really stands out as being hammered harder than others,” LePage said.

That part of the county saw a 42 percent reduction in the number of homes sold compared to August 2006, and a 9.5 percent drop in the median price for resale houses.

Crown said that’s also been her experience with listings in that area, and added that East County’s struggling, too.

“The South Bay is really suffering — it’s terrible,” she said. “And in the East County, sometimes a price reduction doesn’t even get the house sold. It’s hard for a lot of people to get realistic when things happen like this.”

But the buyer pool continues to shrink with the restrictions on mortgages for more than $417,000.

“Yeah, a lot of people have been squeezed out with requirements for higher credit, full documentation (of income), reserves — the stuff people should have always had,” Goldman said. “The dumb money has left the market.”

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